Fidelity Bank Hits Strong Growth Targets
Loan recoveries and writebacks provided a big boost to profit performance for Fidelity Bank Plc in 2019. The bank finished the 2019 operations with revenue and profit right on target with our full-year earnings forecast.
The bank’s management extended a drop of 63 percent in credit loss expenses in 2018 to a net write back position of N5.3 billion at the end of 2019. That is the major development in the bank’s operations in the year that powered profit improvement for the third year running.
The gain in momentum in revenue seen at the end of the third quarter was maintained to full year. The bank closed the year with gross earnings of about N216 billion – just on target with our full year forecast of N217 billion for the year.
Its full-year after-tax profit of N28.4 billion is also on target with our projected profit region of N29 for Fidelity Bank for 2019. It is an accelerated growth in revenue for the bank in 2019 and another strong profit growth that has registered a new profit peak.
The summary of the bank’s operating story for the year is that its management combined revenue improvement to credit loss write back to build the biggest profit figure in the bank’s operating history. Interest income accelerated all the way from 7.2 percent at half year to 12 percent at the end of the third quarter and further to almost 19 percent at full year. This is a rebound from a sharp slowdown in 2018.
Non-interest income lost its lead on revenue growth in the final quarter due to a net loss of N4.7 billion on the de-recognition of financial assets. That turned a strong growth of 39 percent at the end of the third quarter into a drop of about 25 percent at full year.
The bank’s management faced the challenge posed by rising cost of funds and was able to address it to a large extent in the year. There was accelerated growth in interest income in the final quarter while interest expenses slowed down from 23.4 percent at the end of the third quarter to 18 percent at full year.
This enabled the management to turn the tables from interest expenses growing ahead of interest income to growing slightly below it. With that, net interest income sprang up from flat at the end of the third quarter to a top industry growth record of 19.4 percent – the highest growth rate for Fidelity Bank in four years. This is a renewal of strength in converting the gains in interest earnings into operating profit.
Writing back of past credit losses to profit has relieved the pains of close to N30 billion loan loss expenses the bank incurred in four years to 2018. Profit improvements in the past two years have been driven largely by a drop of 63 percent in loan impairment expenses in 2018 and a shift to a net write back in 2019.
The bank reported gross earnings of N215.5 billion for the 2019 operations – a growth of 14 percent. It is an upturn in revenue for the bank as expected from an increase of 4.8 percent in gross income in the preceding year. Interest income grew by 18.7 percent to N182.3 billion in the year and accounted exclusively for the revenue improvement.
The upturn in interest earnings reflects a major build up in earning assets during the year. The customer credit portfolio grew by almost one-third to N1.1 trillion and lending to other banks rose by over 34 percent to almost N150 billion. Investment securities surged up by 224 percent to more than N45 billion.
Fidelity Bank’s full-year report also shows an after tax profit of N28.4 billion, which is an increase of 24 percent for the year. The bank has grown after tax profit by 29 percent to nearly N23 billion in 2018. This is a sustained improvement in profit capacity for Fidelity Bank for the third consecutive year.
The ability to convert revenue into profit was higher in 2019 than any time in the past seven years. Net profit margin has improved for the third year on from 6.4 percent in 2016 to 13.4 percent at the end of 2019. Improving revenue with improving profit margin is the strength of Fidelity Bank in 2019.
The strength to grow profit ahead of revenue came from cost savings, which was led by credit impairment expenses. Compared to a net loan impairment expenses of N4.2 billion in 2018, there was a net write back position of N5.29 billion in 2019. The big cost saving here swelled interest earnings net of loan impairment expenses by 35 percent to over N88 billion.
At N99.3 billion, interest expenses grew slightly below interest income at 18.1 percent compared to 18.7 percent at the end of 2019. Cost of funds reduced its claim on interest income from over 57 percent at the end of the third quarter to 54 percent at full year. Net interest income therefore advanced by 19.4 percent to over N83 billion at the end of the year.
The bank closed the 2019 operations with earnings per share of 98 kobo, improving from 79 kobo in 2018. It has proposed a cash dividend of 20 kobo per share in line with our expectation of the first dividend improvement in five years. Qualification date is 17th April but the April 30 payment date may be shifted in view of the disruptive effect of coronavirus management on company annual general meetings.
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